Exxaro Resources CEO Mxolisi Mgojo has singled out recent unrest in SA and poor rail performance among local dynamics that are “clearly negative” to immediate operational stability and long-term investment efficiency and attractiveness, and have to be tackled with urgency.
At the release of the miner’s strong interim results, and the declaration of a record interim dividend, Mgojo said social instability as demonstrated by riots and looting in parts of the country in July, as well as the Covid-19 pandemic and chronic cable theft on the Transnet Freight Rail, need to be tackled “separately, holistically and with urgency”.
These factors have “dire implications for SA Inc”, while recent events serve as an “urgent reminder that business must work with government if we want to protect the investment proposition for our country”, he said.
Mgojo, who is set to retire in May 2023 and hand over the reins to head of coal operations Nombasa Tsengwa, said business and government have been engaging intensively to identify key themes to short-term recovery and long-term economic performance, such as closing SA’s inequality gap, restoring confidence in the economy and strengthening national security.
“From a government point of view, there is definitely a requirement to unblock red tape, address labour issues and some policy directives in the short term to support the growth agenda and enable rapid job creation,” he said. “Leadership, including the president, must be visible and be seen as being in the control and owning the broader national challenges.”
Business, meanwhile, will augment government efforts by providing support to vulnerable communities and small business and mobilising practical ideas for job creation.
In spite of a challenging operating environment, Exxaro reported a strong performance for the first half of 2021, and on Thursday declared a record interim cash dividend of R20.77 a share, up 23% from the R6.43 dividend declared in the first half of 2020.
The group benefited from stronger commodity prices. A higher export coal price resulted in an average price per tonne of $78, which is 74% higher compared to the second half of 2020. Record high iron ore prices also resulted in Exxaro receiving R3.6bn in dividend income from the Sishen Iron Ore Company, in which it has a 21% stake.
Consolidated group revenue rose 8% to R15.14bn, compared with R14bn in the first half of 2020. Core ebitda (earnings before interest, taxes, depreciation and amortisation) were up 10% to R4.33bn compared with R3.93bn in the comparative period. Core headline earnings per share were up 106% to 2,722c a share.
As export coal prices hit 13-year highs, Exxaro exported 4.1-million tonnes in the first half of the year, with a higher proportion of high-grade coal in the sales mix.
“Unfortunately, Exxaro could not fully participate and capitalise on very robust pricing due to poor rail performance,” said CEO-designate Tsengwa.
The Transnet coal export line, like the rest of the rail network, has been hamstrung by operational challenges and chronic cable theft that has hampered mining exports amid a global commodity price boom.
Exxaro had previously warned the trouble on the rail line could slash 2-million tonnes off its export sales for the year, but on Thursday it said the risk is closer to 3-million tonnes now as exports in the first half of 2021 fell 34%.
The company said it expects production and sales to improve in the second half of 2021 as a result of various projects ramping up as well as an anticipated improvement in logistics availability. While the miner supplies coal to the Medupi power station from its Grootegeluk operation, it could not yet say if the explosion at the power station this week — which has resulted in a generation unit being offline — would translate into lower coal offtake from the utility.
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